News

WTO Rules Against Boeing Tax Subsidies, Declares Them Illegal

By:

Chris Gaetano

Published Date:

Nov 28, 2016

The World Trade Organization has ruled against Washington State, saying that the tax breaks it gave to aerospace company Boeing to incentivize local production of the 777x jet violate international trade agreements and, should the ruling be upheld on appeal, must be removed, according to the Seattle Times.

The World Trade Organization (WTO) is an intergovernmental body that regulates international trade with 164 member states including the U.S. Members negotiate general rules and policies generally centered around easing cross-border trade, with the WTO itself providing a forum to resolve disputes over possible rule violations.

The tax break in question was passed in 2013 in order to protect jobs in Washington. It contained a clause that the tax break would be terminated, however, if the state determined that any final assembly or wing assembly was sited outside the state of Washington. This meant that if Boeing wanted to keep the tax break, it would need to not only manufacture the parts of the 777x in Washington, it would need to assemble them there too. The WTO said, however, that the law expressly favors local production over imports, which is prohibited under WTO rules, thus triggering the ruling.

Should Boeing lose the appeal it plans to file, it will have to take corrective action to resolve the trade imbalance (for example, repaying the subsidy or having it removed). The WTO will then evaluate the company's actions and rule whether they were adequate in resolving the dispute, though this ruling can also be appealed.

However, said the Seattle Times, even if Boeing lost every step of the way, the decision is unlikely to make a material impact on its bottom line. It also is unlikely to impact jobs in Washington, at least in the short term, as it has already built large and expensive facilities in the state: it would not make much sense to relocate after having spent so much. Further, the state could simply shift the promise to manufacture the jet in Washington from public law to private contracts, where WTO jurisdiction does not apply.

The ruling comes at a time when the concept of free trade has come under increased scrutiny, not least of which from President-elect Donald Trump. An article in The Wall Street Journal said that Mike Pence, the vice president-elect, and others from the incoming administration recently met with executives at United Technologies Corp., the parent company of Carrier. During his campaign, Donald Trump critiqued Carrier for its plans to move more than 2,000 jobs from Indiana to Mexico. The president-elect said that he intends to convince the company to keep the jobs in the U.S. and said that he feels he is making progress, though United Technologies itself said it has no changes to announce so far. The Journal said that the agreement might hinge on corporate tax policy, such as allowing the company's billions of dollars sitting overseas to be repatriated with a lower rate.